The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
ISSN 2355-4721 The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
The Impact of Fuel Increase and Currency Exchange
Depreciation on Indonesia Aviation Industry Sustainability
Juliater Simarmata Charles A.N Wynd Rizaldy
STMT Trisakti STMT Trisakti STMT Trisakti
stmt@indosat.net.id stmt@indosat.net.id stmt@indosat.net.id
Abstract
Population growth after the crisis of 1998, was accompanied by a very encouraging economic growthreaching 6.3% during 2012. Accordingly, the development of the aviation industry continues to increase rapidly, this is evidenced by the emerging new airlines such as AW Air, Jatayu Air, Lion Air, Star Air which was followed by Batavia Air, Sriwijaya Air, Adam Air, Water Aerfata Papua, which makes the competition between one another takes place very tighty. Through the methods of qualitative and quantitative research design and analysis of rate of expansion which is explorative description, then it is clearly visible that only airlines with appropriate strategies that can survive in the midst of the world economic shocks, especially aviation fuel price increases that occurred every two weeks and the weakening of the rupiah against the dollar . The strategy implemented is related with fuel conservation policy; such as applying Cost Index, Tankering Fuel, Optimum Level Flight elections, focusing on flight technic and maintenance in order to improve efficiency in the use of fuel or aviation fuel, or even change the type of aircrafts.
Keywords: fuel increase, currency exchange depreciation
Juliater Simarmata, Charles A.N, Dian Artanti Arubusman
ISSN 2355-4721
Introduction
As we know, the growth of the world population continues to increase, and Indonesia occupies position number 4 (four) of the world, after China, India and the United States. As recorded in the United States Census Bureau from 2003-2023, the Indonesian population is approximately between 221.8 to 268.3 million people.
Figure 1 Indonesian Population Trends 2003-2023
Onwards, since the post-1998 Low Cost Carrier, New Fleet” to achieve economic crisis, Indonesia’s population competitive advantages. growth is followed by economic growth, in
However, during this decade, there which during 2012 has reached the figure have been many airlines closed and ceased of 6.3%. operations because they can not compete. The awakening of the Indonesian This is caused by an error in selecting and economy after the 1998 crisis, is seen with using the type of aircraft, as well as the the emergence of new airlines such as Air increase in fuel prices of aviation fuel. AW, Jatayu Air, Lion Air, Star Air, followed
An airline’s fleet plan will determine by Batavia Air, Sriwijaya Air, Adam Air, the amount of revenue, or lost profits and
Water and Papua Aerfata and others. The sustainability, because of the amount of the development of the airlines in Indonesia total operating costs is highly dependent was very prevalent, so the impact could be on the type of aircraft used. As an example, seen on a very tight competition. In a sense, the dominant costs are aircraft lease, the each of the airlines compete for larger cost of the flight crew, maintenance costs, market share by selling cheaper tickets than aircraft insurance, fuel cost, and so forth. its competitors by implementing a variety
If refering back to 2003, there had of strategies, such as the ”Hub and Spoke,
ISSN 2355-4721
The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
been a rise in the price of aviation fuel significantly, from Rp. 2,700 per liter to Rp. 4,500 per liter, whereas, at that time, almost all the airlines were still using fuel- inefficient Turbo Jets, which finally led to the government’ impose on a fuel surcharge to cover the cost of fuel in order to stay operational. Later, the airlines change the type of aircraft that is economical with the use Turbo Fan and younger aircrafts, while those who could not afford such aircrafts kept on maintaining fleet types that are fuel inefficient and finally experiencing bankruptcy and cease operations.
As we know, in early 2011 there was in increase in the price of aviation fuel significantly because of the political shift in the world’s largest oil-producing countries; the countries of North Africa and the Middle East.
In fact, since March 2013 there has been a decline in the value of the rupiah against the US dollar, and this incident would affect the business climate Indonesian aviation industry, since all aircraft operating costs greatly influenced by two components; the fuel prices and the exchange rate against the US-dollar.
The phenomenon of the increase in aviation fuel and reduction in the exchange rate will surely affect the business aviation industry, worse, lead to bankruptcy not careful in determining the strategy both internally and externally. As released in m.news.viva.co.id | Wednesday, December 18, 2013, 6:43 pm; Later that year the exchange rate was of 12,000 per dollar. Based on data from reference exchange rate of Bank Indonesia (BI) in Jakarta Interbank Dollar Spot Rate (Jisdor), it was recorded that since Thursday, December 5, 2013, the rupiah capped at 12,018 per dollar, down 58 points compared to the level of 11,960 per dollar on Wednesday , December 4, 2013, but on the first weekend of December, Friday, December 6, 2013, the rupiah strengthened its position and capped at 11,960 per dollar. Trading in the spot market was still holding the exchange rate remained below the level of 12,000 per dollar until Tuesday-- in the second week of December. On Wednesday, December 11, 2013, the exchange rate fell to 12,005 per dollar level. Until the third week of December, the rupiah has not recovered from its downfall in the level of 12,000 per dollar. Data released by the central bank Jisdor showed up, Tuesday, December 17, 2013, rupiahs were capped at 12,104 per dollar.
With the weakening of the rupiah against the British Pound, the condition made the airline industry very upset. This is in accrdance with the CEO of Garuda, Satar, Monday, December 16, 2013 in m.news.viva.co.id Wednesday, December 18, 2013, 6:43 which states; entire airline industry was devastated by the continuing depreciation of the rupiah since mid this year. Nearly 60 percent of the cost airline uses the US dollar as a means of transaction and also almost 60% of airlines costs are in US dollars. The weakening of the rupiah, he continued, clearly impacting load carrier. These conditions result in losses. At this time, airlines that do not have overseas route will feel very heavy burden because the airline’s financing in the form of dollars, while earnings in the form of rupiahs. In accordance with the depreciation of the rupiah the fact that rupiah depreciation is between 20 to 30 percent.
Some questions also arise, such as; how is the development of the exchange rate with the dollar in the range of 2009-2013, then, how is the development of the price of aviation fuel in 2009-2013, then how is the cost sructure of the types of aircraft used in global, finally, how is the strategy of the company to continue to grow.
The study uses quantitative and qualitative research design while based on the expansion rate this study is descriptive explorative.
Juliater Simarmata, Charles A.N, Dian Artanti Arubusman
ISSN 2355-4721
Results And Discussion
An airline’s fleet plan will determine the amount of revenue, or lost profits and sustainability, because, the magnitude of the total operating costs is highly dependent on the type of aircraft used. As an example of a very simple and clearly visible is the rental aircraft the cost of the flight crew, maintenance costs, aircraft insurance, aviation fuel cost, and so forth.
Furthermore, planning fleet is one of the most important activities of an airline. Many airlines out of business or go bankrupt because they do not have planning fleet are good, so are not able to compete.
According Radnoti (2002), there are three types of methods of calculating total cost of operation of the aircraft; the Direct Operating Costs (DOC), Indirect Operating Costs (IOC) and Total Operating Cost (TOC). Here, direct operating costs are those costs that directly affect the operation of the aircraft, then, indirect operating costs are those costs that do not directly impact on the operation of the aircraft, while the total operating cost is the total of all costs both direct and indirect costs, from the operation of aircraft on a route. Or the amount of direct operating cost plus the indirect operating cost.
As we know, the total operating cost (TOC) for each aircraft type varies as it is influenced by several things, such as: aircraft price, maintenance cost, crew cost, fuel cost, aircraft insurance, route navigation chrages, handling cost and others.
Thus, in the planning fleet, hence, the company must take into account several important aspects, including: types of aircraft, number of fleet, age of aircraft and financial targets as expected revenue, cost and profit.
Furthermore, to determine the type of aircraft to be used, then, airlines need to take into account some consideration; total operating cost, payload, flight route and the the size of market or demand.
If observed closely, in fact, the market conditions that exist in Indonesia is very potential for the aviation industry. Of course, an airline should be able to choose the market well adapted to the conditions of the company or of its aircraft, both in terms of the ability of the aircraft as well as operating costs of the aircraft.
Based on data, including Bappenas, the World Bank and Bank Indonesia, it turns out, the economy growth ranged from 5.8% - 6.2%, whereas, during 2014, the economic growth target set by the government is lower than the previous year, 2013. It will of course be one of the obstacles for businesses in Indonesia, particularly in the aviation industry.
From the perspective of the aviation industry in 2014, it seems very hard to survive let alone earn a profit if airlines do not have a strategy that is really specific (fit strategy).
The market of domestic passengers in 2013 only grew in the range 2,1%, while international passenger growth was about 9,47%. From the results of forecasting domestic passengers in 2014, it turns out, the passenger growth reached only between 5.6% -11.9%, while, international passengers grew between 8.5% - 15.9%.
Accordingly, there is the growth of cargo which is additional revenue an airline. Domestic cargo growth in 2014 is preditected to grow between 5% -7%, while for international cargo will be between 1.5% -2%. With cargo growth conditions as aforementioned, it would not be of much help in covering the airlines suffering losses due to rising jet fuel prices and the purchase power of today’s society.
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The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
Table 1 Total Domestic Passenger
MONTH 2011 2012 2013
January 4155500 4387100 4603600 February 3812200 4001000 4055700 March
4155700 4426400 4612600 April 4098900 4331900 4472900
Mei 4221700 4536500 4563900 June 4676600 4624700
4919400 July 4901300 4716800 4132800
August 3680800 4440600 4971400 September 4546000 4768500 4672500
October 4348300 4727900 4761100 November 4429500 4715800 4541200 December 4490800 4876700 5377700
TOTAL 51517300 54543900 55684800
Average 4293108 4545325 4640400
Source: BPS 2014
Source : Data diolah oleh penulis-2014
Figure 2 Forecast and Trend Total Passenger National - Domestic
Juliater Simarmata, Charles A.N, Dian Artanti Arubusman
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January 806900 930700 973600 February
September 887500 983200 1111400
Figure 3 Forecast and Trend Total Passenger National - International
Source: BPS 2014 Source : Primary data 2014
TOTAL 10828800 11860500 12984100
Average 902333 988375 1082008
December 974100 1040300 1223400
November 854700 944300 1026200
October 867500 1005700 1068200
1040900 1207000
773400 892400
Table 2 Total International Passenger
MONTH 2011 2012 2013
July 1006600 1013000 1035700
1065300 1188900
1080400 June 1036300
1013900 Mei 896500 972200
1105100 April 858800 955700
950300 March 890900 1016800
August 974800
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9557 10218
Source : Primary data 2014
Figure 4 Forecast and Trend Fuel Price 2014
Source : Pertamina
Average 6903 7570 9643 10432 11005
7350 8299 10116 10719 12542
11991 December
9838 10854
October 6851 7713 9506 10935 12115 November 7241 7983
9403 10996 11589
10786 September 7346 7474
August 7091 7503 9668 10113
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The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
June 6685 7452 9519 9976 9949
7737 10332 10581 9856
April 6731 7428 10157 10734 10359 Mei 6434
10632 10997
10997 March 6336 7258 9777
7287 918- 10202
10713 February 6668
January 6755 7363 8727 9913
Table 3 National Fuel Price 2009 -2013
Month 2009 2010 2011 2012 2013
Worse, in addition to fuel prices, the exchange rate against the Dollar was also a very dominant effect on the cost and price.
In such circumstances, the airline fleet planning would determine the viability of a business flight to remain their existence and sustainabiltiy. Fleet is closely related to cost and price, especially with the condition of the current jet fuel prices that have an enormous impact on the continuity of operations of a company.
July 7346 7338 9489
Juliater Simarmata, Charles A.N, Dian Artanti Arubusman
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January 11000 9350 9100 9100
August 10000 9100 8725
Source : Primary data 2014 Figure 5 Forecast and Trend ROE Rupiah per US Dollar 2014
Average 10563 9167 8900 9450 10640 Source : Market Monitoring
9750 12100
December 9500 9000 9100
9500 9000 9025 9700 11725
September 10000 9100 8950 9650 11500 October 9750 9050 8925 9675 11625 November
9600 11125
10500 9100 8600 9500 10250
9750 February
Table 4 US Dollars ROE Rate Against Rupiah
Month 2009 2010 2011 2012 2013
9400 9850
9000 9200 9800 Mei 11000 9150 8750
8950 9200 9800 April 11500 9150
11500 9400
9800 March
11500 9400 9050 9150
June 11000 9200 8625 9475 9925 July
ISSN 2355-4721 The Impact of Fuel Increase and Currency Exchange Depreciation on Indonesia Aviation Industry Sustainability
With the condition of the exchange rate with the dollar and the price of aviation fuel in 2014, in fact, the situation will inevitably impact on the airline industry, especially e on ticket prices and purchasing power.
Table 5 Table 6
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Juliater Simarmata, Charles A.N, Dian Artanti Arubusman
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From tables 6 and 7, then, it can be observed how changes in the dollar exchange rate and the price of jet fuel greatly affect the selling price and the selling price per hour per seat hour of the types of aircraft used. As an example can be seen in the B 737-400 aircraft; it is seen clearly for the changes Total Operating Cost (TOC) per seat hour in 2013 have increased very significantly; of USD. 7506.02 to $ 7805.07 in January 2014, with the composition of the fuel cost from 49.75% to 50.85%.
Meanwhile, fleets with Boeing 737- 800 NG are really very much different from the Total Operating Cost (TOC) per seat hour, or much lower and more competitive when compared with the Boeing 737-400 or the A-320.
By observing the condition of the existing airlines in Indonesia today, actually it is not in accordance with the expectations of the business. This is because Boeing 737-800 NG is still very limited in number and only a few airlines which use such a type of aircraft such as Garuda Airways, Lion Air and Sriwijaya Air. The cause of the limited use of Boeing 737-800 NG Fleet of which are working capital, the number of orders and the number of production of Boeing 737-800 which is not balanced by the number of customers spread all over the world.
Conclusion As we know, almost 60 percent of the cost airline in US dollars, so, the weakening rupiah increasingly impacts on the company’s combined with high jet fuel prices that always change every 2 weeks, of course, that will greatly affect operational costs. In particular ticket prices.
When viewed from the perspective of the aviation industry, during 2014 is a period of very heavy in order to survive and make a profit, if it does not have a specific strategy (fit strategy). In line with the above description, then, hopes are put on the government to keep strengthening the exchange rate against the dollar to help the domestic industrial sector, especially the aviation industry. In addition, fuel conservation is the strategy should be applied by the airlines in order to continue to compete within dollar exchange rate fluctuations and also the increase in aviation fuel is to make policy such as applying Cost Index, Tankering Fuel, Optimum Level Flight elections, focusing on flight technic and maintenance in order to improve efficiency in the use of fuel or aviation fuel during the flight so it is able to save operating costs.
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